Profitability of Product

Product A Product B

(Cost per unit Rs.) (Cost per unit Rs.)

i. Direct Materials 40 45
ii. Variable Cost of Direct Labour 3 2
iii. Direct Expenses (Variable) 3 3
iv. Variable Overheads
Factory 3 4
Office and administration 1 2
Selling and Distribution 5 4
v. Marginal Cost of Sales 55 60
vi. Selling Price 100 110
vii. Contribution per unit 45 50
viii. Total Fixed Cost 25 25
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ix. Profit 20 25

Since the profit of product B is higher, we select product B for more investment.